Exam 16: Intercorporate Equity Investments

An unrealized loss for an equity securities investment classified as trading securities does not reduce net income.

Central Investments bought 4,000 shares of Benet Company common stock on January 1, 2015, for $20,000, and 4,000 shares of Roy Company common on July 1, 2015, for $24,000. Benet declared dividends on December 31, 2015 of $3,000. At the end of 2015, the market value of Roy was $30,000 and the market value of Benet was $28,000. At the end of 2016, the market value of Roy was $32,000 and the market value of Benet was $24,000. The stocks were considered to be held for their long-term investment potential. Central owns 8% of Benet Company and 12% of Roy Company. -Assume that the Roy Company stock was sold during 2017 for $31,000.The proper accounting recognition at the date of sale was

At any point in time a company can elect to use the fair value option to account for equity method investments.

Equity securities designated by the investor to be held for a short period of time are classified as available-for-sale securities.

Perry Investments bought 2,000 shares of Able, Inc. common stock on January 1, 2015, for $20,000 and 2,000 shares of Baker, Inc. common stock on July 1, 2015 for $24,000. Baker paid $2,400 of previously declared dividends to Perry on December 31, 2015. At the end of 2015, the market value of the Able stock was $18,000 and the market value of the Baker stock was $28,000. The stocks were purchased for short-term speculation. Perry owns 10% of each company. -If the securities purchased are classified as available-for-sale securities,Perry should record the year-end adjustment as

Ford Corporation paid $10,200,000 for a 47% interest in Allen Corporation on January 1,2014 when Allen had the following identifiable assets and liabilities: At the time of Ford's purchase,the fixed assets had a remaining life of 8 years.For the year ended December 31,2014,Allen reported sales of $9 million and expenses of $5 million and declared and paid dividends of $1 million.At December 31,2014,Allen reported the following balance sheet information: Required: 1.Give the income statement and balance sheet accounts and amounts as they would appear on Ford's financial statements under the equity method for the year ended December 31,2014.Be sure to show calculations. 2.Explain how your answer to requirement 'a' would change if Ford determined that it actually controlled Allen and had to consolidate its investment.Give specific income statement and balance sheet accounts and amounts where possible.Be sure to show calculations.

Palmon Industries owns an investment that experienced a decline during 2015 that has been judged to be "other than temporary." The investment is held in Palmon's available-for-sale debt portfolio,and Palmon expects to sell the security before recovery of its amortized cost basis less current-period credit loss.It was purchased in March 2014 at a cost of $460,000.At the end of 2014,the fair value of the investment was $520,000 and its amortized cost basis was $454,000.At the end of 2015,the fair value of the investment is $410,000 and its amortized cost is $448,000.What amount of loss will Palmon Industries report on its income statement for the year ending December 31,2015 related to this investment?

The Kerry Company began operations during 2014 and purchased shares of Molson Corporation stock during the year.The market value of the Molson stock had increased as of the end of 2014.Kerry should have classified this investment as a trading security but mistakenly classified it as an available-for-sale security.Which of the following properly describes the impact of this error?

When accounting for a non-free-standing foreign subsidiary,translation exchange rates are accounted for using the temporal method which involves reporting all cost of goods sold accounts at the

Other-than-temporary impairments are not an issue for debt investments classified as

When two companies form a joint venture and each company owns exactly 50% of the joint venture

Sub Company is a 100% owned subsidiary of Parent Corporation.During 2015,Parent sold inventory costing $500,000 to Sub for $750,000.Sub Company still had $150,000 (at transfer price)of the inventory on hand as of December 31,2015.During 2015,Parent Company reported sales of $2,250,000 and cost of goods sold of $1,500,000,while Sub Company reported sales of $1,200,000 and cost of goods sold of $1,000,000. Required: Determine the 2015 consolidated gross profit.

A minority active ownership is represented by

If the parent company owns more than 50% of the subsidiary's voting stock,and effectively has control of the subsidiary,consolidated financial statements are

Under the temporal method,foreign translation gains and losses are reported on the income statement.

On January 1,2015,the Shaw Corporation purchased 70% of the Ward Company's voting stock for $1,050,000.Ward's net assets had a book value of $1,200,000;the fair value of Ward's equipment was $200,000 greater than its book value.The book value of Shaw's assets immediately after the acquisition of Ward totaled $3,750,000 while Ward's assets had a book value of $2,150,000.Assuming that Shaw used the acquisition method to prepare its consolidated balance sheet,what was total consolidated assets as of January 1,2015?

Which of the following does not properly describe the accounting for an investment using the equity method when the fair value option has been elected?

At the acquisition date,when the cost of the shares acquired exceeds the underlying book value,the investor is required to amortize any excess that is attributable to separately identifiable assets have an indefinite life.Which of the following is a separately identifiable asset that might not be recognized on the investee's balance sheet?

If Sun Company acquired Star,Inc.in a pooling of interests transaction,the entry would have used which one of the following to account for the pooling?

The fair value adjustment for available-for-sale securities results in